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JetBlue CEO Explains How Baggage Price Increases Will Keep Fares Low

JetBlue, which has been criticized for raising bag fees, says it had no choice given the increase in the cost of fuel.

“Fuel prices are up over 33 percent this year,” CEO Robin Hayes told Skift at the Aviation Festival. “You end up having to pass those on. We’re about low fares. We hate increasing fares. But we had a couple of fare increases, and then we made the decision to increase the bag fee to $30 if you don’t buy it in the fare.”

Hayes emphasizes that passengers who plan ahead will still get a discount. JetBlue customers can pay slightly more for a fare at booking that includes a free checked bag. That fare, known as Blue Plus, is $25 more than the lowest cost fare, therefore, passengers who choose that fare will still pay the former price for checking a bag.

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Other airlines, such as United Airlines, which added $5 to everyone’s fare to compensate for checked luggage, effectively increase fares for all.

“We lay out the fares up next to each other and we make it very clear that it includes a bag,” Hayes said. “Some of the challenges come through the [online trade agencies] because it’s not so obvious to customers. But when you’re on our website — most customers come to our website — it’s pretty clear which fare you should buy.”

Ticket prices and extras are determined by demand, therefore prices tend to increase when people choose those add-ons. For example, on JetBlue, an upgrade to a seat with extra legroom is priced higher from Los Angeles to New York, where customers often demand these seats, than from Jacksonville to Fort Lauderdale.

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In order to compensate for higher fuel prices, JetBlue could have used a more dynamic price model, charging passengers for luggage on longer flights, or during holidays, as Discounter Spirit Airlines did, but Hayes believes the change would have confused customers.

“You could get super scientific and say the price should be linked to the weight of the bag as well, so it’s the weight and the distance,” he said. “But I think that just gets very complicated to message. So we end up just with an average. But yes, it obviously costs more to transport a bag from JFK to LAX than it does from Boston to Pittsburgh.”

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JetBlue still offers more legroom than any other US airline and is the only one with free high-speed WiFI, Hayes said.

“We can’t have the best on everything, but we want to have what makes a difference to the customer,” he said. “We want to win there. And everywhere else, we just need to be competitive. And those products, they’re an investment, right? If you have more leg room, TV, and WiFi, it costs money to provide that.”

The low-cost airline could have also introduced a basic economy fare similar to United, American Airlines and Delta Air Lines, yet they believe their price model is fairer as it is.

“I think that we already have a fare structure that our customers appreciate,” Hayes said. “We’re always looking at things, so it’s not that that fare structure won’t evolve.”

Established in 1999, JetBlue has a hybrid business model that offers low fares but valued extras like personal TVs and free drinks and snacks. The airline currently operates single-aisle aircraft only and has 85 Airbus A321s on order for delivery next year, though Hayes says there is still a chance the carrier will upgrade the A321s to the long-range versions.

RELATED: JetBlue Founder Has Raised Money For A New, Low-Cost Airline

At the conference, Hayes suggested that JetBlue may expand into Europe, potentially from Boston and New York, but he added the airline has still not made a commitment to international travel, though he believes expansion into Europe is more likely than into the Midwest, where cities like Milwaukee, Kansas City, and St. Louis would benefit from low-cost service.

“Not that we can’t add some of these other smaller cities or medium-sized cities over time, but the next best source of value for us is to add the destinations that have the most relevance, so London, Paris, and other European countries,” he said.

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